Documentation of Accounting Policies and Procedures

All local units of government should document their accounting policies and procedures. This documentation is traditionally maintained in a written policy statement or manual (in paper or electronic form) which spells out the accounting policies and procedures that make up the entity’s internal control system. The detail and complexity of the documentation will depend on the size of the entity and its activities.

The documentation should:

• Describe the procedures as they are intended to be performed;
• Indicate which employees are to perform which procedures;
• Explain the design and purpose of control-related procedures to increase employee understanding and support for controls; and
• Be reviewed and updated periodically.

The written accounting policies and procedures will:

• Enhance employees’ understanding of their role and function in the internal control system;
• Establish responsibilities;
• Provide guidance for employees;
• Improve efficiency and consistency of transaction processing;
• Improve compliance with established policies;
• Help prevent deterioration of key elements in the entity’s internal control system;
• Maintain consistency in procedures from year to year and during employee transitions; and
• Help decrease circumvention of the entity’s policies.

The written documentation of accounting policies and procedures should be prepared by appropriate levels of management. It should be approved by the entity’s governing body to emphasize its importance and authority.

To be effective, the written documentation should be shared with all employees. Entities may want to ask employees to sign a form acknowledging receipt of the policy or manual and to agree to adhere to the policies contained in the policy or manual.

Date this Avoiding Pitfall was most recently published: 01/20/2023